Tesla 'hopeful' of import duty reduction ahead of India entry, Elon Musk comments on local factory prospects

Tesla’s India entry is imminent – the company has made a series of key appointments for its operations in the country, and also commenced the local testing and validation process for the Tesla Model 3. On 24 July, Tesla CEO Elon Musk explained the hurdles the manufacturer faces as it gears up to enter one of the biggest automobile markets in the world. In a series of replies on Twitter, Musk deemed the high import duties India levies on vehicles of a certain value – regardless of whether they’re powered by a petrol/diesel engine or an electric powertrain – as unfair.

All of Tesla's offerings - barring the base Model 3 - cost more than $40,000 in the US. Image: Tesla

“We want to [launch our cars in India], but import duties are the highest in the world by far of any large country! Moreover, clean energy vehicles are treated the same as diesel or petrol, which does not seem entirely consistent with the climate goals of India”, said Musk in response to a Twitter user’s query.

That said, Musk mentioned the company is expecting at least a temporary reduction in import duties for electric vehicles, which would help it gain a solid footing in the Indian market.

“We are hopeful that there will be at least a temporary tariff relief for electric vehicles. That would be much appreciated”, added Musk in response.

Over the last year, several states have attempted to lure Tesla into setting up a production facility in the region. However, as things stand, it’s clear that Tesla aims to begin its India innings by first only importing its vehicles into the country as completely-built-up (CBU) models, which would attract a high level of import duty.

India currently pegs import duty at 100 percent of the vehicle’s price for models with a cost, insurance and freight value of $40,000 or above, and 60 percent for vehicles priced below $40,000. At present, only the entry-level Tesla Model 3 costs less than $40,000 in the US, with all other Tesla vehicles comfortably breaching that figure. Tesla is understood to be lobbying hard for this duty rate to be more than halved at least temporarily, as it readies to finally commence sales in India.

In response to another tweet, Musk said Tesla would be "quite likely" to set up a factory in India to manufacture its cars and SUVs locally – but only if it finds success with its initial import-only business model.

“If Tesla is able to succeed with imported vehicles, then a factory in India is quite likely”, said Musk.

While it remains to be seen if Tesla is able to coerce the authorities into temporarily slashing duty rates for imported electric vehicles, it’s almost certain the Tesla Model 3 will be launched in India in the coming months. A handful of Model 3s are understood to have been shipped into the country for ARAI testing and certification purposes.

Tesla is in the process of identifying locations in select metros to set up its stores via which it will retail the Model 3.

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